SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 9, 1996
TUCSON ELECTRIC POWER COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
Arizona 1-5924 86-0062700
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
220 West Sixth Street, Tucson, Arizona 85701
(Address of principal executive office) (Zip Code)
(602) 571-4000
(Registrant's telephone number, including area code)
Item 5. Other Events
As previously disclosed in the Company's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on August
9, 1996, the staff of the Arizona Corporation Commission (ACC) has
been actively considering different options for the introduction of
retail electric competition in Arizona. On October 9, 1996, the ACC
voted to publish a Notice of Proposed Rulemaking (NOPR) and to
establish a procedural schedule for the consideration of a proposed
rule on retail electric competition. Formal written comments on the
proposed rule will be due at least 30 days after publication of the
NOPR by the Arizona Secretary of State. Oral proceedings on the
proposed rules have been scheduled for December 2, 3, and 4, 1996.
The proposed rule on retail electric competition, if ultimately
adopted by the ACC, would open up the service territory of each
"Affected Utility" to competing electric service providers on a
phased-in basis over the period 1999 to 2003. Beginning no later than
January 1, 1999, retail customers representing at least 20% of each
Affected Utility's 1995 peak demand would be eligible to choose their
electric service provider from companies certificated by the ACC.
Beginning no later than January 1, 2001, retail customers
representing at least 50% of each Affected Utility's 1995 peak demand
would be eligible to choose their service provider. All remaining
retail customers would then be eligible to choose from certificated
service providers by January 1, 2003. Under the proposed rule,
Affected Utilities would be required to provide distribution wheeling
services (i.e., retail wheeling) at rates approved by the ACC in
order to facilitate sales by competing service providers.
The Affected Utilities whose service territories would be open
to competing service providers under the proposed rule include Tucson
Electric Power Company, Arizona Public Service Company, and Citizens
Utilities Company. Electric cooperatives would be permitted to
request a modification to the proposed phase-in schedule in order to
preserve their tax exempt status or to modify power supply
arrangements and related loan agreements. Each of the Affected
Utilities would be eligible to offer electric service to customers of
other certificated entities. Participation in competitive retail
markets by other electric utilities which are not regulated by the
ACC, such as the Salt River Project and certain municipal utilities,
would be permitted under the proposed rule on a similar reciprocal
basis (i.e., their service territories would be similarly open to
competing service providers). However, such participation would
require action by the Arizona legislature.
The proposed rule specifies that the ACC shall allow the
recovery of unmitigated stranded costs by Affected Utilities.
Stranded cost is defined in the proposed rule as the net difference
between the value of prudent jurisdictional assets and obligations
under traditional regulation and the market value of those assets and
obligations in a competitive retail market. In order to recover
stranded costs, utilities would have to demonstrate to the ACC that
they have taken every feasible, cost effective measure to mitigate or
offset stranded costs, and utilities would have to file estimates of
unmitigated stranded costs with the ACC which are fully supported by
analyses and records of market transactions undertaken by willing
buyers and sellers. The proposed rule specifies that other issues
related to the analysis and recovery of stranded costs would be
examined by a working group following adoption of the proposed rule.
Until such time as the ACC adopts specific guidelines for quantifying
unmitigated stranded costs, including the methods used to identify
and value jurisdictional assets and obligations, the Company believes
that any estimate of unmitigated stranded costs would be highly
speculative.
Should the rule become effective in its present form, each
Affected Utility would be required to file unbundled service tariffs
with the ACC by December 31, 1997, for the following services:
distribution wheeling service, metering and meter reading services,
billing and collection services, open access transmission service (as
approved by the Federal Energy Regulatory Commission, if applicable),
ancillary services (as defined by the Federal Regulatory Energy
Commission in Order No. 888), information services such as the
provision of customer information to other service providers, and
other ancillary services necessary for safe and reliable system
operation. Until such time as the ACC determines that retail
competition has been substantially implemented, each Affected Utility
would also have to provide standard offer bundled service equivalent
to the services currently being provided at regulated rates to all
consumers located in their current retail service areas.
The proposed rule envisions that new market entrants would be
required to obtain a certificate of convenience and necessity from
the ACC prior to offering retail electric service. New market
entrants would be required to demonstrate adequate technical and
financial capabilities to the ACC prior to certification. In
addition, all competitive market participants, including Affected
Utilities, would be required to obtain at least one-half of one
percent of the energy sold competitively in the Arizona retail market
from new solar generating resources by January 1, 1999. This
required percentage would increase to one percent on January 1, 2002.
New solar resources are defined under the proposed rule as
photovoltaic or solar thermal resources that are installed on or
after January 1, 1997.
Under the proposed rule, certain issues pertaining to retail
electric competition would be addressed by the ACC in workshops or
proceedings to be held after adoption of the rule. Such issues
include the guidelines to be used for stranded cost quantification
and recovery, the possible formation of an independent system
operator for electrical transmission facilities, and the methods to
be used in determining consumer participation during the early phase-
in periods.
The proposed rule is subject to public comment and approval by
the ACC prior to becoming effective. In comments filed with the ACC
on an earlier draft version of the proposed rule, the Company stated
its belief that major financial, legal, operational, pricing, and
reliability issues were not adequately addressed by the draft rule.
The Company plans to file written comments with the ACC on the
proposed rule after publication of the NOPR. The Company also plans
to participate in the oral proceedings scheduled for December 2, 3,
and 4, 1996. At the present time the Company is unable to predict
the effect such a proposed rule would have, if adopted, on the
Company's future results of operations.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TUCSON ELECTRIC POWER COMPANY
(Registrant)
Date: October 11, 1996 Ira R. Adler
Ira R. Adler
Senior Vice President and
Principal Financial Officer